Small Business Financing with Factoring Sell your invoices for cash
Are you a small business looking for business financing? There are many ways to generate cash flow. However, not all may be right for you. If your business is small or new, you may not qualify for traditional business financing or even small business financing. Or you may need cash flow assistance above and beyond such a loan. If this situation sounds familiar an alternative may be a form of business financing called factoring. A factor is a company that purchases receivables, giving your business an advance payment up front. It is a mode of small business financing that can help free businesses from the cash-flow squeeze caused by slow-paying customers. As an end result, a business can generate instant capital and more easily predict and manage its cash flow. Companies in the services industry are particularly well-suited to factoring as a small business financing tool. Temporary employment agencies illustrate the process well. Temporary employees placed by the employment agencies get paid on a weekly or bi-weekly basis but many of the clients are larger companies that may take longer to pay. Factoring can help such a firm cover its cash flow. Despite the benefits of factoring, many businesses do not take advantage of this business financing tool, either because they are unaware of its availability or due to misperceptions on how it works. Factoring has been used as a form of business financing around the world for more than four centuries as a respected way to manage cash flow. For example, nearly all of the business financing done in the garment industry is done through factoring. Additionally, every time a restaurant processes a payment by credit card, it is engaging in a process similar to factoring, since the credit card processing company advances the restaurant the payment immediately and then collects the money at a later date. Today, it is estimated that factoring is a $100-billion-a-year business financing industry in the United States.
What does a factoring company do for my business?
A factor purchases its clients\' invoices and immediately advances most of the invoice amount in cash. The remainder of the invoice amount is remitted to the client upon collection, minus a discount percentage. Ideally the fee should be all inclusive and based on the credit and collection characteristics of the client and its customer base. In selecting a factoring company, it is important to have the business financing/factoring firm specify up front if there will be any additional processing, administrative or other hidden fees in addition to the percentage charge. Is factoring right for you? Traditionally, this mode of small business financing works best for small to mid-sized companies that don't have much collateral yet or start-ups that haven't developed an established relationship with a bank. In the latter case, it can be the temporary financing measure that fills in until a working capital loan is possible. Factoring also fills a need for rapidly-expanding companies who are outgrowing their operating capital. See if factoring is right for you. Call CapitalPlus today!
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